The Dip: Business is Business

The Dip is back. Welcome to another edition penned by our own commenter, The Dipsy. Agree or disagree with what he says? Tell us by leaving your comments.

After a six month dance comprised of equal parts fixation, stubbornness, and incompetence, Ruben Amaro finally delivered Phillies fans Roy Halladay, gift wrapped with a bow on top, just in time for Christmas. While the front office finally seemed sated, the attendant loss of Cliff Lee – in an altogether separate trade – has left many fans with a bitter taste in their mouths because most of us believe it didn’t have to happen. Fans can view the departure of Cliff Lee in a number of ways: stupid, short sighted, panic induced, and cheap spring to my mind. I view the deal as the squandering of a once in a lifetime opportunity to become one of the great teams of its era. While the fans have been told the reasons why it had to go down this way, we’re still not sure we really understand. But maybe not understanding is better, because if we knew the real reasons, we might be that much more angry.

It’s A Baseball Decision

Giving up prospects to get a really good player does serious damage to your farm system – I get it. If we were getting blue chip prospects back from Seattle I could ALMOST understand it. From all accounts they are decent prospects. To my way of thinking, you don’t trade an underpaid Cy Young winner when you’re in the middle of a string of World Series runs just so you can add players to your farm system. If the Phillies had kept Lee, the minor league talent still would have been middle of the road. But we don’t need any players from there right now, anyway.

Worried about replenishing the pipeline? If I’m not mistaken we get compensatory picks for Lee and Blanton when they leave after next season. If the plan was always to make that second trade for prospects, it would have made a helluva lot more sense to make the Halladay trade then hang on to Lee and trade him during spring training when you can get more value. Perhaps we could have even traded Blanton instead. As a baseball decision, this was a poor one. But it was more than that.

It’s a Business Decision

David Montgomery, Wharton graduate, made a statement last week that the Phillies were “already in the red”. If you’re like me, you found these remarks to be disingenuous and insulting. There are a zillion ways in accounting to measure valuation and profits and I’m sure Dave had his pick of which one he wanted to use to back up his assertion. Just for fun though, lets assume that he’s being truthful. Operating from this premise I offer the following remarks.

Baseball teams are capital assets. The money that is made goes back into the team. That is why the Skull and Bones Society that is Phiilies ownership has turned a 30 million investment into about $500 million. This is called “capital appreciation”. Montgomery thinks we have no concept of this. I have my own business and on any given day you can ask me how my revenue stream is and I can say “it sucks”. Never mind that I’ve socked away a ton into my business over the years. Yet, because of the nature of businesses and how they are set up, I can still look a guy in the eye and tell him that, at the moment, “I’m in the red”. This is what the Phillies do.

Let’s assume that the Phillies really ARE struggling financially. Given the amount of gold bullion they rake in every year on attendance, TV, concessions, advertising, merchandising, blah blah, if they can’t turn a profit, I would suggest that they are working with a flawed business model and that they need to change it. I don’t know any business (and we are talking “business” here) that would allow the guys that run it to lose them money every year…well, except the Pirates owner. As a consumer, I implore the ownership to make the appropriate personnel changes to make the club profitable so I don’t have to see another Cliff Lee fiasco in my lifetime.

At the risk of venturing into esoterica, I would call the reader’s attention to a thing in business called “branding”. It is the concept that a business utilizes, through capital expenditure, marketing, commitment to excellence in the product space, and overall product quality, to gain an additional revenue stream that can be attributed directly to its reputation – it’s what all right-thinking businesses aspire to. This revenue stream can inure to the business during poor business cycles when other competing products are more effected. Think: McDonald’s, Clorox, Gillette, iPod. In sports, think of the Cowboys, Yankees, Dodgers, Lakers, Jeff Gordon, etc. Why do you think the Cowboys have so many fans in states not named Texas and why these same fans stuck with them after the glory days of the 70’s, and when they stunk in the 80’s. Because they did everything they could to win, had great players, and did it for a long time.

If the Phillies had kept Cliff Lee and won another Series, there would be kids growing up in Nebraska as Phillies fans. Buying Phillies stuff. Flying in for Phillies games twice a year. There’s a tangible dollar value in that. Montgomery knows it yet looks elsewhere because he and his partners won’t be around in 10 years to reap that money.

When the Phillies kissed off the chance to keep Cliff Lee for another year, they sent a message to everyone that while they’d love to be in the World Series, it would have to be on their terms. That approach inspires no one. While trading Lee saves the Phillies a few bucks in the short term, they missed the opportunity to become a money-making machine in the long run that another World Series title would bring them. The chances of that happening without Lee are considerably less. And THAT’S why trading Lee is a bad business decision, too.